This article considers how investors can structure vehicles that give them exposure to operating assets in Iraq. Investors seeking exposure to Iraqi businesses, real estate or infrastructure often invest through a holding structure: an offshore fund or holding company that owns, directly or through intermediate companies, an Iraqi operating company. The structure affects ownership rights, governance, tax, the ability to receive cash from Iraq and the routes available for exit.
A structure that works well in other markets may not suit Iraq. Restrictions on foreign ownership of certain assets, licensing requirements tied to the identity of owners, banking requirements for repatriating funds and the enforceability of foreign shareholder agreements all need consideration. Structuring with these factors in mind from the outset avoids costly reorganisation later.
The Companies Law No. 21 of 1997, as amended, governs Iraqi operating companies and their shareholders. The Investment Law No. 13 of 2006, as amended, governs investment licences and incentives for qualifying projects, including rights for foreign investors. The Income Tax Law No. 113 of 1982, as amended, governs taxation of Iraqi companies and distributions, and Iraq’s tax treaties, where applicable, may affect withholding. The Real Estate Registration Law No. 43 of 1971 and rules on foreign ownership of real property are relevant to real estate holdings. The Central Bank of Iraq’s requirements govern cross-border transfers. The Interim Law on Securities Markets (Coalition Provisional Authority Order No. 74 of 2004) is relevant where the vehicle invests in listed securities.
Defining the investment objectives
The structure should reflect what the investors want:
- Asset type. Operating businesses, real estate, infrastructure or listed securities.
- Investor base. A single investor, a club of investors or a fund with many investors.
- Holding period and exit. A defined fund life with planned exits, or long-term ownership.
- Return profile. Regular income through dividends or interest, or capital gains on exit.
These objectives guide the choice of vehicle, jurisdiction and the arrangements between layers of the structure.
Choosing the layers of the structure
A typical structure has several layers:
- Investor vehicle. A fund or holding company where investors hold their interests, often in a jurisdiction familiar to international investors.
- Intermediate holding company. A company that holds the Iraqi investment, possibly in a jurisdiction offering treaty benefits or legal certainty.
- Iraqi operating company. The company that owns the assets and conducts the business in Iraq.
Each layer adds cost and complexity, so it should serve a purpose, such as limiting liability, facilitating exit, accommodating co-investors or managing tax.
Addressing ownership restrictions
Some Iraqi assets and activities are subject to restrictions on foreign ownership or require approval. Foreign ownership of land is restricted, though investment-licensed projects may obtain rights to land through allocation or lease. Regulated sectors such as banking, insurance and telecommunications require regulatory approval of owners. The structure should ensure that the Iraqi company can hold the assets it needs and that changes in upper-tier ownership do not breach restrictions. Corporate advice in Iraq can assess ownership restrictions for specific assets.
Using investment licences
An investment licence under the Investment Law may offer benefits, including tax exemptions, customs exemptions, rights to land and guarantees for foreign investors such as repatriation of capital and profits. Licences come with obligations, including project timelines and employment requirements, and transfers of the project may require approval. The structure should consider whether the Iraqi company should hold an investment licence and how licence conditions affect exit.
Planning cash repatriation
Investors will want to receive income and capital from Iraq. Cash may be extracted through dividends, shareholder loan repayments, management fees or royalties. Each route has different tax consequences and documentation requirements. Banks processing transfers will require evidence such as audited accounts, corporate resolutions and tax clearance. The structure should be designed so that cash can move efficiently and lawfully. Tax advisory services in Iraq can assess withholding, treaty access and the tax treatment of each extraction route.
Designing governance across layers
Governance should flow from investors to the operating company. The investor vehicle’s documents set investor rights. Shareholder agreements at the intermediate and Iraqi levels should reflect these rights and give the investor vehicle effective control or protection over the Iraqi company. Where there are local partners, their rights should be coordinated with the investors’ rights. Foreign-law shareholder agreements may not be directly enforceable in relation to Iraqi corporate acts, so key provisions should also be reflected in the Iraqi company’s articles.
Planning exit routes
The structure should allow several exit routes: sale of the Iraqi company’s shares, sale of the intermediate holding company, listing of the Iraqi company or a sale of assets. A sale at the intermediate level may avoid Iraqi transfer formalities but may still require Iraqi approvals if it changes control of a regulated company or investment-licensed project. Tax on indirect transfers should also be considered.
Coordinating co-investors and local partners
Many investment structures include co-investors alongside the main fund, or local partners who hold a stake in the Iraqi company. Each additional party affects the structure’s governance and exit flexibility. Co-investors may invest at the fund level, at the intermediate level or directly in the Iraqi company, and their rights should be coordinated with the main investor’s.
Local partners often bring relationships, licences or operational capability. Their position should be considered carefully:
- Economic rights. How profits, distributions and exit proceeds will be shared.
- Governance rights. Which decisions require the local partner’s consent.
- Licence dependency. Whether licences depend on the local partner’s participation and what happens if the partner exits.
- Exit coordination. Whether the investor can sell its interest without the local partner’s consent and whether drag-along rights extend to the local partner.
A clear agreement with the local partner, reflected in the Iraqi company’s articles where possible, reduces the risk that the partner’s position becomes an obstacle to the investor’s plans.
Illustrative example. A regional fund plans to invest in a portfolio of Iraqi healthcare clinics. It establishes an intermediate holding company, which owns an Iraqi company that operates the clinics. The Iraqi company obtains an investment licence for a new hospital, giving it rights to land under a long-term lease. The fund documents a shareholder loan from the holding company to fund construction, allowing repayments alongside dividends. When the fund later sells, it sells the intermediate holding company, having confirmed in advance that the investment commission’s approval would be needed for the change in control of the licensed project.
Conclusion & how Etihad Law Firm can help
Investment vehicles with exposure to Iraqi operating assets should be structured with ownership restrictions, investment licensing, cash repatriation, governance and exit in mind. A well-designed structure protects investors’ rights and allows them to receive returns and exit efficiently.
Etihad Law Firm advises investors and fund managers on structuring investments in Iraqi operating assets, from vehicle design through acquisition, operation and exit. Our commercial team can assist with intra-group and management arrangements within the structure.